Educational Articles

And Then There Were Three: BlackBerry and the Future of Mobile Operating Systems

Sharif Abdou
| July 12, 2011

Canadian handset maker Research In Motion (RIMM) spent much of the previous decade revolutionizing the cellphone market with its BlackBerry line of smartphones, quickly becoming the de facto mobile device for the on-the-go professional. Today, its cash cow is under assault by consumer-focused offerings, such as Apple’s (AAPL) blockbuster iPhone and Google’s (GOOG) multi-headed Android operating system. Worse yet, RIMM’s once unassailable stature among the business set is being steadily chipped away, as competitors increasingly offer the productivity tools that made BlackBerry king of the enterprise hill. Although the field is crowded today, many tech watchers believe the number of dominant mobile platforms will ultimately narrow down to three, and few question whether Apple and Google will have a seat at the table. In the first two parts of our three-part series, we took a closer look at tech giants Microsoft (MSFT - Free Microsoft Stock Report) and Hewlett-Packard (HPQ - Free H-P Stock Report), respectively, and whether they had the right stuff to grab that last seat. We now turn our attention to the group from Waterloo, Ontario whose claim on that third and final place at the table seemed all but certain not too long ago.

RIMM’s origin story dates back to 1984, and may sound all too familiar by now, at least to long-time followers of the tech industry. At the time, mobile phones resembled briefcases, the era of `a PC in every home’ was still a few years away, and the Internet (as we know it today) was just a dream. The company was started by childhood friends Mike Lazaridis and Douglas Fregin in a one-room office, financed by family funds and a modest government loan. A college dropout and a hockey fanatic, respectively, the duo embodied the rebel spirit endemic to start-ups, while gaining a reputation for being visionary yet practical. What made this story so unique was that—unlike many of its peers, such as Apple and Google—RIMM wasn’t born in the tech incubator of Silicon Valley, but in the snowy plains of Ontario, Canada.

Although the company started out as a builder of networked monitors for mundane manufacturing applications, within a decade it had evolved into a maker of sophisticated two-way pagers. And, with the 2003 introduction of its BlackBerry line-up, RIMM’s transformation into a world-class mobile device maker was complete. Known for its thumb-friendly keyboards, secure data network, and notification system that would automatically `push’ emails to handsets, the BlackBerry operating system defined the modern smartphone, relegating all other devices to has been status.

By mid-2008, BlackBerry’s share of the burgeoning smartphone market had grown to 35%, and its presence in Corporate America was nearly inescapable, becoming as ubiquitous as khaki pants and Starbucks (SBUX) cups. Moreover, RIMM’s share price and market capitalization hit all-time highs that summer, reaching $148 a share and $83 billion, respectively. The gang from Waterloo—still led by that visionary college dropout—had ascended to the top of the mobile world. Indeed, BlackBerry had become such a fixture in the lives of so many, that it was affectionately dubbed `CrackBerry’ by owners, due to their compulsive need to stay connected to their devices. Even President Obama was a professed loyalist, and successfully fought to keep his BlackBerry over the objections of his security staff as he entered the Highest Office.

Since that pinnacle, just three years ago, Research In Motion has suffered from a series of missteps, miscalculations, and just plain hubris that has seen its share price plummet to the sub-$30 mark, while its market cap shriveled to just under $15 billion. It would seem the same rebel spirit and self-confidence that made BlackBerry a worldwide phenomenon had delivered the company to its current rockier path. What many have deemed as arrogance on the part of co-CEOs Mike Lazaridis and Jim Balsillie, likely caused RIMM to miss the coming touchscreen phenomenon, made popular by Apple’s revolutionary iPhone.

Reportedly, the company’s top executives were convinced the iPhone would flop, since it lacked a keyboard and access to RIMM’s proprietary email and messaging servers, which corporate clients had come to rely on. Worse yet, even as touchscreen technology filtered down to mid-range and low-end phones, the company clung to its tried-and-true form factor, with a smallish, non-touch screen on top and a full physical keyboard down below. In addition, RIMM leadership underestimated the threat of Google’s Android operating system, and watched it explode in popularity as it sprinted to the head of the market share pack.

More recently, the company tried to answer the call with its own touch-based BlackBerry devices, such as the Storm and Torch, but neither caught on with consumers. RIMM also fought back against Apple’s segment-defining iPad line-up with a tablet computer of its own, christened the PlayBook, but it too was met by a lukewarm reception when it hit the market.

So where does all this leave RIMM now? BlackBerry devices are universally hailed for the quality of their construction materials as well as their excellent fit and finish. However, the company’s flagship operating system is usually singled out as its primary weakness, with a lack of applications (or apps) often cited as its Achilles heel. Though Research In Motion has taken steps to address that deficiency, most industry watchers believe a more drastic plan of action will be needed to battle the sector’s twin goliaths, Apple and Google.

In Part 1 of our series, we detailed Microsoft’s past mistakes in the mobile space, and its renewed focus to once again become a major player in the segment. Its recent partnership with (and some would say backdoor acquisition of) struggling handset maker Nokia (NOK) sent a clear and present message that Microsoft is playing for keeps. A similar tie-up has been floated by pundits as RIMM’s last-best hope, since it would allow the company to concentrate on its world-class hardware without diverting resources to software development.

Others have pointed to the very location of RIMM’s headquarters as a major obstacle. Indeed, with many of its top executives and engineers 2,600 miles away from the center of the tech universe, Silicon Valley, those decision makers may be more prone to groupthink in the bubble of Waterloo, Ontario.

Finally, more critical observers point to RIMM’s Co-CEO structure as contributing to most of its problems, slowing the speed of communications and decision making, while making it harder for dissenting voices to be heard. With its market share, stock price, and total valuation all sliding, we think nothing should be off the table.

To be sure, the company remains highly profitable, and sales of its flagship BlackBerry devices continue to grow. Too, RIMM still has a stronghold in the enterprise space, and is registering solid growth in emerging markets, such as China and India. But in the smartphone markets that are growing fastest, where the tastemakers reside and most of the innovation is taking place, Research In Motion is fading, plain and simple. In order to reverse its slide and get back in the game, a complete top-down reevaluation is required; from its products to its partnerships, to its executive structure and where it calls home. Then, and only then, will the group from Waterloo have a chance to claim that final seat.

Advantages:

• Still dominate the enterprise market

• Email and messaging servers remain the industry standard

• World-class hardware

• Growth in emerging markets

Disadvantages:

• Executive suite and board of directors dominated by Messrs. Lazaridis and Balsillie

• Overconfidence

• Headquarters is too far from the action

• Lack of apps, lack of apps, lack of apps

At the time of this article’s writing, the author did not have any positions in any of the companies mentioned.